The Effect of Internationalization on Modeling Credit Risk for SMEs: Evidence from UK Market

Posted: 14 Dec 2012 Last revised: 24 Jun 2014

See all articles by Jairaj Gupta

Jairaj Gupta

University of Birmingham

Nick Wilson

University of Leeds - Credit Management Research Centre; Leeds University Business School; University of Leeds - Faculty of Business

Andros Gregoriou

University of Brighton

Jerome Healy

Hull University Business School (HUBS)

Date Written: May 1, 2014

Abstract

This study considers domestic and international small and medium-sized enterprises (SMEs) of the United Kingdom separately while modelling their default risk. To establish the empirical validation, separate one-year default prediction models are developed using dynamic logistic regression technique that encapsulates significant financial information over an analysis period of 2000 to 2009. Almost an identical set of explanatory variables affect the default probability of domestic and international SMEs, which contradicts the need for separate default risk models. However, the lower predictive accuracy measures of the model developed for international SMEs motivate us to compare the weights of regression coefficients of the models developed for domestic and international firms. Test results confirm that four out of the nine common predictors display significant statistical differences in their weights. However, these differences do not contribute to the discriminatory performance of the default prediction models, given that we report very little difference in each model’s classification performance.

Keywords: Credit Risk Modeling, Bankruptcy, Corporate Failure, SME, Small and Medium Enterprises, Internationalization

JEL Classification: G33

Suggested Citation

Gupta, Jairaj and Wilson, Nicholas and Gregoriou, Andros and Healy, Jerome, The Effect of Internationalization on Modeling Credit Risk for SMEs: Evidence from UK Market (May 1, 2014). Journal of International Financial Markets, Institutions and Money, Vol. 31, 2014, Available at SSRN: https://ssrn.com/abstract=2189200 or http://dx.doi.org/10.2139/ssrn.2189200

Jairaj Gupta (Contact Author)

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom
00-44-7795904913 (Phone)

Nicholas Wilson

University of Leeds - Credit Management Research Centre ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 4472 (Phone)

Leeds University Business School ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 4472 (Phone)

University of Leeds - Faculty of Business ( email )

Leeds LS2 9JT
United Kingdom

Andros Gregoriou

University of Brighton ( email )

Brighton
Brighton, BN2 4AT
United Kingdom

Jerome Healy

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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